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Frank started market timing in 1982 when the Federal Reserve cut interest rates and sparked the 1980’s bull rally. Realizing that this rally could have been forecasted, he began to search for indicators which had similar forecasting ability. Within a year, his first newsletter was launched,... More
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  • Trading Trends, It's Only For Winners 1 comment
    Jun 15, 2013 10:26 AM

    Barraged With News

    Market timers following trends generate great returns over time because their buy and sell decisions are based on the one piece of information that counts the most. That information is "price."

    We are barraged with fundamental analysis, price earnings ratios, economic projections, news events, and a steady stream of TV and news analysts who tell us where they think the market is going.

    But the simple truth is... no one knows where the market is going next.

    The only absolute truth... is price. If prices are trending higher, the market is going higher. If prices are trending lower, then the market is trending lower.

    Two Kinds Of Traders

    News events in particular cause traders to make incorrect decisions, because they play on emotions. The urge to follow the crowd is normal. It is comforting. And in a strong bull market, it may just be correct.

    But in most circumstances, letting emotions push you into making trading decisions costs traders money.

    There are two kinds of traders.

    1. Those who make emotional decisions based on any of the above.

    2. Those who make money off of those who make emotional decisions.

    Price Is Always Right

    It is hard to accept that one aspect of the markets, price, could be the one thing that is guaranteed to make you a successful market timer or trader.

    There are so many indicators, so much available analysis, but "price" is always right. It is "never" wrong. At the end of every trading day, price contains the input of millions of traders, the input of all technical and fundamental analysis.

    Do you remember Enron? It is a legend and many investors lost a great deal of money trading this once high flying stock.

    The thousands of investors and traders who owned Enron at $90 felt confident in their positions. Many "averaged down" when the price started dropping. But we wonder, after all the billions of dollars were lost in the Enron collapse, how many felt that way when shares hit 50 cents.

    Trend trading market timers "may" have bought shares at $90. But they were short most of the way down because they made their trading decisions based on "price."

    When the price started to drop, they reversed their small losses and changed to short positions. Many made huge profits as they rode this stock down.

    Losses, such as the billions lost by investors who held shares in Enron, are always reported by the media. But have you ever heard the media mention the other side of those losses?

    Or how much of those losses went into someone's pockets!

    How about the 80% decline in the Nasdaq in the 2000-2002 bear market? Or the 50% decline in the 2008-2009 bear market? The losses were all over the financial press. But were the gains on the other side of those losses mentioned. Our Bull & Bear Timer was up over 120% during those bear markets.

    Losses are news, gains apparently are not.

    Market timers following price trends profited during these declines. They were windfalls. But you will never read about it in the press.

    Following Price

    Price is objective. You can faithfully follow prices and make timing decisions based on them. You are able to determine trend changes, and most importantly, to exit those positions if the trend was a false one.

    And false trends do occur. Usually at market tops and market bottoms. But the losses in "trendless" markets are kept small by those who use "price" to establish trading strategies and risk management trading rules.

    And when the trends do take off, the profits are made.

    Market analysis is always subjective. It can not be trusted in trading decisions. Indicators work some of the time, but also can fail miserably. The financial news media is not even worth mentioning.

    Only price can be trusted. Only price is always right. Only using price to determine trends can lead you to profitable timing and a successful investing future.

    Conclusion

    Market timers must follow the trading strategies faithfully. Every sell signal must be followed immediately, and every buy signal as well.

    Guessing how far a trend will go is useless. No one knows. Price makes the trend.

    Discipline is the name of this game. Those who stand the test of time and make the trades, will over time, beat the markets, and will be investing winners.

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  • Always a good read -- thank you, Timer Frank!
    17 Jun 2013, 03:25 AM Reply Like
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